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A Brief Introduction of Nepalese Securities Market

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A Brief Introduction of Nepalese Securities Market 1 INTRODUCTORY PRESENTATION GANESH SHRESTHA Assistant Director Securities Board of Nepal (SEBON) 18th Group of the GLOPAC Fellowship Program Tokyo, Japan, 2021 2 Financial System in Nepal Nepalese financial system consists of banking, Securities markets, insurance companies, non-banking financial institutions and saving and credit cooperatives. Out of total assets of financial system, 85 percent has been covered by BFIs. 3 Financial System in Nepal Cntd….. Financial System in Nepal Non-banking Banks & Securities Insurance Cooperatives financial (13959) FIs (155) Markets (504) (40) Institutions (4) Stock Exchange (1) Employees Saving & Credit Commercial Bank Listed Companies (215) Life Provident Fund Cooperatives (13917) (27) Merchant Bankers (29) Insurance (1) Saving & Credit Development Mutual Funds (15) (19) Citizen Cooperatives Bank (20) Investment Stockbrokers (50) Non-life Trust (1) Licensed by NRB Finance Insurance (16) Stock Dealer (1) Deposit Company (22) CSD (1) (20) Insurance & NGOs permitted for Credit limited banking Microfinance (85) CRA (2) Reinsurance Guarantee transactions (25) Infrastructure DPs (75) (1) Corporation (1) Development ASBA Member (51) Social Securities Bank (1) Social Qualified Institution Securities Fund (1) Investor (64) Fund (1) 4 Regulatory Bodies of Nepalese Financial Markets. In Nepalese financial markets, multiple regulators are active to regulate and supervise the overall markets. S.N. Regulator Financial Market 1 Securities Board of Nepal (SEBON) Overall Securities & Commodities Derivatives Market 2 Nepal Rastra Bank (NRB) Money Market, Bank &Fis, Foreign (Central Bank of Nepal) exchange management 3 Insurance Board Insurance Market 4 The ministry of Finance Non-Banking Financial Institutions 5 Department of Co-operatives Co-operatives (under the the Government of Nepal, Ministry of Land Management, Co-operative and Poverty Alleviation) 5 Securities Board of Nepal (SEBON). It is the apex regulatory body of Nepalese Securities & commodity derivatives markets. It regulates and supervises to the Securities & commodity derivatives markets, Securities and commodity derivatives market’s business persons and both instruments. It was established at 1993 as a separate regulatory body of Securities markets. The Nepalese government has prioritised the securities markets and has recognised it as an important medium for capital accumulation for achieving the sustainable development goal. In Nepal the securities law has provision as a quasi-judicial body that recognises securities regulator for administering securities laws including imposing monetary penalties. 6 Organization Structure of SEBON A. Governing Board The governing Board of SEBON is comprises Seven members including representatives of Government, expert member and private sector representative. Chairman: One executive chairman appointed by the Government for tenure of four years to renowned person who have obtained at least master's degree and gained at least seven years of experience in the field of stock exchange management, capital market development, economics, finance, commerce, management or law. the chairperson act as the administrative chief of, and perform the day-to-day business of the Board. Representative Member: Ministry of Finance (Joint Secretary), Ministry of Law (Joint Secretary), Central Bank (Executive Director), Institute of Chartered Accountants of Nepal (Vice Chairman), Federation of Nepalese Chamber of Commerce and Industries (Vice Chairman). Expert Member: One expert member appointed by the Government of Nepal for the tenure of three years. 7 Organization Structure of SEBON Contd……. B. Audit Committee (Internal and External Audit Committee) C. Executive Chairman : Head of Organisation (the chairperson act as the administrative chief and perform the day- to-day business of the Board.) D. Executive Director : Head of Department E. Deputy Executive Director : Head of Division F. Director : Head of Section G. Assistant Director : Head of Sub Section H. Senior Assistant I. Assistant 8 Objectives of SEBON Objectives Protect the interest of the investor. Make the securities market Develop the securities fair, transparent, efficient, market to mobilise competitive, accessible necessary capital for the and credible to the economic development investor. of the country. 9 Functions of SEBON SEBON regulates and manage the activities of the securities markets and persons involved in securities business by regularising the issue, purchase, sale and exchange of securities in order to develop securities market and to protect the interests of investors. SEBON is also mandated to regulate commodities exchange market after the enactment of Commodity Exchange Market Act, 2017. It also regulates and manage alternatives investment fund such as private equity, venture capital and hedge fund. Promote the corporate governance and professionalism of the market participants. 10 Legal Structures A. Acts Securities Related Act, 2006 Commodity Exchange Market Related Act, 2017 B. Regulations Securities Board of Nepal Regulations, 2007 Securities Market Operation Regulations, 2008 Securities Businessperson (Stock Broker and Securities Dealer) Regulations, 2008 Securities Businessperson (Merchant Banker) Regulations, 2008 Mutual Fund Regulations, 2010 Securities Central Depository Service Regulations, 2010 Credit Rating Regulations, 2011 Securities Registration and Issuance Regulations, 2016 Commodities Exchange Market Regulations, 2017 Securities Listing and Trading Regulations, 2018 Specialized Investment Fund Regulations, 2019 11 Legal Structures contd……. C. Guidelines Portfolio Management Guidelines, 2010 Mutual Fund Guidelines, 2010 Securities Purchase (Public Issue) Guidelines, 2017 Securities Issue and Allotment Guidelines, 2017 D. Bylaws Secondary Market Trade Operation of Government Debenture Byelaws, 2005 OTC Market Operation ByeLaws, 2008 Securities' Central Depository Services Byelaws, 2012 Securities Transaction Clearing and Settlement Byelaws, 2013 Securities Enlistment Byelaws, 2018 Securities Trading Byelaws, 2018 12 Securities Market Instruments Instruments Diversification in Nepalese Securites Marekts 4% Equity Preferance Shares 47% 37% Corporate Bond Government Bond Mutual Fund 12% 13 Sector wise classification of listed companies 14 Market Size A. Primary Markets The primary market was started from 1937 with the issue of IPO by Nepal Bank Ltd. and Biratnagar Jute Mills. Equity is the major portion of primary issue. Initial public offering (IPO), further public offering (FPO), right issue, debenture issue and mutual Fund and bonus issue are the major methods of capital mobilisation through primary markets in Nepal. The capital mobilisation from primary markets has been around 4.04 billion US Doller. Primary markets fully automated by applying ASBA system. It has widespread all over the country. The investor can apply the application to the public offerings through internet and mobile device staying at home. In Primary Markets, there are around 1.5 million investors participate in single issue of equity share. 15 Market Size Contd… B. Secondary Markets The Secondary market6. Reformwas initiated Challenges,in 1976 in a primitive way with the establishment of Securities Marketing Centre (SMC) which was converted into Nepalcontd.stock Exchange Ltd. In 1993. NEPSE started trading at the secondary market from 100 points in January 1994. The highest point of indices is 2526.92 whereas the record lowest points is 292.02. Total Market Capitalisation 29.11trillion US Doller at 4th February, 2021. Then the market Cap and GDP ratio is 95 percent, Average annual turnover is around 8.37 percent on the total market capitalisation. Average Daily Turnover is USD 8.55 million. Total demat account opened is more than 2.7 million till 4th February, 2021. In Secondary Market there are around four hundred thousand active investor has participated. In this around 99 percent are the retail investors. 16 Use of Technology in Securities Markets. Primary markets is fully automated by applying ASBA system. It has widespread all over the country. The investor can apply the application to the public offerings through internet and mobile device staying at home. The Secondary Markets is Semi-automated (Only securities transaction is automated but other Clearing and settlement is manual). It has not developed as much as primary markets. 17 Securities market trend in last five years Particulars 2015/16 2016/17 2017\18 2018/19 2019/20 Number of Public Issue 55 101 87 65 34 Ammount of Public Issue 17.79 57.73 48.74 45.50 29.65 (USD in biilion) Capital Mobilisation 37.52 91.58 79.02 69.92 59.33 through Securities Market NEPASE Index 1718.15 1582.67 1212.36 1259.02 1362.65 Market Capitalisation 1770.94 1805.20 1312.54 1433.33 1579.52 (USD in billion) Annual Turnover (USD in 154.26 199.32 111.03 100.67 132.18 billion) Market Capitalisation to 84.10 71.44 47.70 45.25 47.59 GDP Percentage 18 Challenges of Nepalese Securities Market. Service improvement and professional dev. Effective development of mutual funds and trustee services, secondary debt market and OTC market. Implementation of free-pricing system in IPO and attracting real sector companies in the securities markets. Making securities market investment/market friendly by improving in disclosure practices. Reducing cost of public issue of securities. Establishment of settlement guarantee funds for the compensation for losses due to system deficiencies
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